Startups across Africa raised a total of $2.9 billion in 2023 representing a 39% year-on-year decline in funding.
This is according to a report by ‘Africa: The Big Deal’, which monitors deals announced by startups on the continent. In 2022, the firm said African startups raised $4.8 billion.
The report, however, noted that despite the decline, the result for African startups was better than what many had feared due to the funding slowdown in the year.
It further revealed that 500 start-ups raised at least $100,000 in Africa in 2023, compared with 821 in 2022. This also represents a 39% year-on-year decline.
What the report is saying
Highlighting the capital raise activities by African startups last year, the research platform said:
- “Last year, startups in Africa raised at least $2.9 billion through deals $100k and above. That’s if we count all types of deals (equity, debt, grants, etc.), but exclude exits. For reference, we tracked 19 exits in 2023 worth over half a billion dollars, almost entirely thanks to two Tunisian success stories: InstaDeep’s acquisition by BioNTech and Expensya’s acquisition by Medius.
- “Funding on the continent fell -39% YoY. In the context of a global slowdown in VC activity, this performance is better than most might have feared. 500 start-ups raised at least $100k in Africa in 2023, compared to 821 in 2022 (also -39% YoY). This therefore means that the average deal size has remained stable between 2022 and 2023, again a pretty encouraging fact given the global climate.”
Shift from equity to debt
Beyond the total number, the report noted that many startups in Africa have turned to debt to finance their growth. It observed that the amount of debt raised reached $1.1 billion, a +47% growth YoY, while equity funding fell by -57% during the same period.
- “In 2022, start-ups in Africa had raised 19 cents of debt for every $1 of equity they’d secured. In 2023, this number went up to 65 cents, and debt made up 38% of all funding raised (vs. 16% in 2022)” the report stated.
But the African startups’ shift to debt did not just start in 2023. According to a recent report by Briter Bridges, a research and market intelligence firm focusing on emerging economies African startups in general borrowed a total of $2.1 billion between 2014 and 2023.
The report also noted that debt financing in the African startup ecosystem had grown over the last five years due to a decline in equity funding.
According to Briter Bridges, from 2019 to H1 2023, debt as a share of the total volume of funding to ventures in Africa increased from 4% to 26%.
- “While debt is certainly playing a role in Africa’s startup ecosystem and innovations on the financing side making it more accessible, one of the biggest drivers of debt’s rise in Africa’s startup ecosystems may be the dramatic fall in equity funding, which fell from $2.6bn in 2022 to $1.4bn in 2023.
- “Over the past ten years, more than $2bn in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa from more than 140 funders for a total of more than 200 deals,” Briter Bridges stated in the report.
